The Taylor rule implies that a central bank should adjust interest rates frequently
A)with particular emphasis on capital movements across borders
B)but only in response to changes in the inflation rate
C)but only in response to changes in the output gap
D)whenever output or inflation deviates from the desired levels
E)none of the above

Question

Quizplus · Accepted Answer

The Taylor rule suggests that a central bank should adjust interest rates whenever output or inflation deviates from the desired levels. It considers both the inflation rate and the output gap when determining the appropriate level of interest rates. However, it does not give particular emphasis on capital movements across borders.

The Taylor Rule Implies That a Central Bank Should Adjust